Put Volume Climbs as NVIDIA Corporation (NVDA) Drops

NVIDIA Corporation (NASDAQ:NVDA) is trading lower today, after Carter Worth suggested the stock is overvalued

Oct 6, 2016 at 11:23 AM
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NVIDIA Corporation (NASDAQ:NVDA) is down 1.6% at $67.11, following reports of a massive share sale from one top exec. Additionally, Carter Worth told CNBC's Fast Money that he believes the semiconductor stock is overvalued -- despite outperforming tech heavyweights Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) -- and could be "too much of a good thing." Pete Najarian also weighed in, saying this analysis could make NVDA an attractive target for call buyers, who could use options to replicate owning the stock. Nevertheless, it's near-term put players who are dominating the action, betting on today's downside to continue.

At last check, NVDA put volume was running at two times what's typically seen at this point in the day -- with nearly 9,000 contracts on the tape. However, most active is the stock's weekly 10/14 65.50-strike put, which could be seeing sell-to-open activity. If this is the case, the goal is for NVDA to hold above the strike through next week, when the weekly options expire.

Further down the list, data suggests buy-to-open activity at a number of puts, including the weekly 10/7 67.50 strike. By purchasing the option, traders are betting on extended downside through the contract's expiration, at tomorrow's close. 

More broadly speaking, put buying has been picking up the pace on NVDA in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NVDA's 10-day put/call volume ratio has risen to 0.74 from 0.63 over the past two weeks. What's more, the current ratio ranks in the 73rd annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip.

Even more telling is the security's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 1.32. Not only does this show that puts outweigh calls among options expiring in three months or less, but it rests higher than 87% of comparable readings taken in the past year. Simply stated, short-term speculators are more put-heavy than usual toward NVDA.

And while some of this activity could be of the protective kind, the skepticism toward NVDA is seen outside of the options pits, as well. Short interest, for example, surged more than 7% in the most recent reporting period, and now accounts for a lofty 11.3% of the equity's available float.

Elsewhere, nine out of 23 analysts maintain a "hold" or "strong sell" rating on the stock. Plus, the average 12-month price target of $64.15 stands at a discount to NVDA's present price.

What's surprising is that this much pessimism surrounds a stock that's more than doubled year-to-date -- and hit a record high of $69.70 yesterday, just the latest in a string of all-time peaks. As such, NVDA's 14-day Relative Strength Index (RSI) closed Wednesday in overbought territory at 71, suggesting a near-term pullback may have been in the cards. Regardless, should NVIDIA Corporation (NASDAQ:NVDA) resume its longer-term uptrend, an unwinding of skepticism could fuel the equity's fire.

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